Behind the Scenes at GM: What Went Wrong?

It was one of the most brilliant marketing schemes ever devised. General Motors convinced the average American that with each new year, you need a new car. It was the perfect sales pitch for a prosperous country raring to try out a brand new highway system. And the company could offer a car for "every purse and purpose," because from the beginning, GM was really several car companies in one.

"GM came along with this hierarchy of brands, so you can start off life with a practical and modest Chevrolet and then you get to a prestigious Cadillac at the end," explained journalist Paul Ingrassia. "Essentially, in between, maybe you'd go through a Pontiac, an Olds and a Buick."

Each line of vehicles was a marriage of brains and brawn. Designers like Harley Earle, the "Da Vinci of Detroit," would come up with glorious moving sculptures, engineers would add mathematical horsepower, and laborers -- often immigrants or the descendants of slaves -- took on the back-breaking, mind-numbing task of building them.

"In the '20s and '30s, these were horrible jobs to have," said New York Times reporter Mickie Maynard. "There was a caste system, and yet, you could pretty much get hired if you could show up and you had the might to do those jobs. 'Cause they were physically very tiring jobs."

Watch "20/20" FRIDAY at 10 p.m. ET for the full story.

Out of this sweat and noise, through the Depression and the second World War, rose the United Auto Workers. The union proved its might through sit-down strikes and world-beating productivity. By 1950, GM could easily afford to give pensions and health care to its workers. As a result, employer-based coverage became the American way ... and a UAW card became a ticket to middle-class security. Men without high school educations could buy homes and cars, and send their children to college.

Through the '50s and '60s, life in Motown was good. But with higher GM profits came greater union demands. In 1970, after a two-month strike, employees were given a sweet deal known as "30 and out." If you started on the line at 18, you could retire at 48 ... with full benefits for life.

According to Ingrassia, GM's attitude was "we can afford it. "

But the deal only shortened the fuse on a ticking bomb, because as the work force aged, GM would have to spend more on retirees and less on cars.

"There wasn't any leadership on the union side," said Maynard. "They had to get re-elected. There wasn't any leadership on the company side. They couldn't afford a strike."

GM: Quality Control Issues

The '70s also brought oil shocks and new regulations. GM frantically tried to re-engineer a more efficient fleet, while cutting costs by building the various brands, from Chevy to Caddy, the same way.

According to management expert Jim Womack, it was a fatal error: People noticed that all GM cars looked alike. "Why would I pay premium money for a car that's actually this other car?"

Because smaller cars meant smaller profits, executives cracked the whip on labor, demanding more, faster.

"They go from 60 cars an hour, not to 65, not to 70, they go to 100 cars an hour," said Ingrassia. "Quality nosedived." At the end of a GM assembly line were two doors: Major Repair and Minor Repair.

The 1977 Chevy Vega was just one result, as ABC correspondent Bill Weir attested. "This thing dripped so much oil, my dad called our driveway "The Black Sea."

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